The European Response to Covid-19: A Break with the Past?

This chapter assesses the European response to the Covid-19 crisis and its effectiveness in terms of dealing with the macroeconomic imbalances and structural weaknesses in Southern Europe and especially in the ‘intermediate’ economies. It focuses on the ECB’s active monetary policy, the suspension of the Stability and Growth Pact fiscal rules, and the launch of the Next Generation EU Fund, as well as its financial capacity and priorities, and the funding allocation among European countries. The European political leaders embraced a Keynesian approach to deal with the Covid-19 shock that allowed more effective crisis management in terms of fiscal and monetary policies compared to the global financial crisis in 2008. However, this chapter shows that although the European leaders adopted a different approach to deal with the pandemic, the macroeconomic imbalances and structural weaknesses in the southern European economies keep them in an ‘intermediate’ position in the global economy, limiting the prospect of a dynamic economic recovery in the aftermath of the pandemic. The Eurozone remains vulnerable to future crises.